"It Wouldn't Matter if It Was Widgets."

(Except, of course, that no one has ever been arrested for smoking a widget.) An interview with Richard Cowan, CFO, Cannabis Science Inc.Scott Leibs and Leah Tedesco, CFO MagazineSeptember 1, 2010

While there may be no such thing as a typical CFO, it's a safe bet that Richard Cowan is less typical than most. Among the more interesting data points on his résumé is his three-year stint (1992–1995) as national director of NORML (the National Organization for the Reform of Marijuana Laws). Today, Cowan holds the distinction of serving as the finance chief at the country's only publicly traded medical-marijuana company, Cannabis Science Inc. (CBIS, traded on the OBB).

A 1962 graduate of Yale, Cowan was anything but a campus radical: he studied economics and served as president of the Yale Young Republicans. He went on to pursue a number of business ventures even as he wrote widely about U.S. drug policy, including a cover story for National Review titled "How the Narcs Created Crack," which has been praised as a pioneering look at the economics of contraband.

Medical marijuana is very much in the news, in part because the Veterans Administration recently eased its opposition to it, at least a little. Business issues aside for the moment, why does this issue appeal to you?In the early 1990s we [at NORML] held a national medical-marijuana day, using a grant we'd gotten to bring in patients from around the country. They had all kinds of astonishing stories to tell. One guy marched with a long string of pill bottles that had held all the conventional medications he'd been given for headaches and so on after he had been hit by a drunk driver. He'd been able to stop using all of them by using cannabis. Stories like that have an emotional impact on me.

How does a publicly traded company operate in such a legally and politically sensitive environment?We're following several different paths. First, for the foreseeable future we have to assume that no medical-marijuana product is going to be sold outside of the dispensary system, so we will work with dispensaries to provide standardized products compliant with state laws. We are also working on products for Food and Drug Administration approval, which is what would be needed to sell over-the-counter or by prescription. We have entered into a joint agreement with a company that makes smokeless electronic cigarettes, which have great potential to deliver a precise dose to patients, and we are looking at [nonsmokable] products such as extracts, tinctures, and lozenges. We want to bring the highest scientific standards to what is, right now, sort of an herbal medicine that operates, by necessity, in a gray area.

How did you go from activist to CFO of the country's only publicly traded pharmaceutical cannabis company?I had known someone for a long time who was a libertarian and a medical-marijuana activist, and he had been told by people that he could get funding for a medical-marijuana company. He wanted to know if I could help him because he had no background in corporate finance, and I said sure. So he started a company and brought in [as CEO] Dr. Robert Melamede, who had retired as the head of the biology department at the University of Colorado, Colorado Springs. The point of going public was to get financing, since at that particular point in time [2008] if you mentioned financing to people they ran screaming from the room. So we decided to go public — unfortunately, just as Lehman Brothers went under. So that threw things off course a little bit.

And there was also some acrimony between the parties involved?As we were getting started as a public company I received an e-mail threatening to file charges against me [for various alleged improprieties]. Essentially, one person claimed that I was in cahoots with Dr. Melamede to steal from the company. There was nothing to steal! It was not a pleasant situation, but our response became very simple. We voted to oust this person from the three-man board, so we now have a two-man board, Dr. Melamede and me. [As part of this matter Cannabis Science also reached a settlement with K&D Equity Investments that cleared the way for it to issue 3.6 million shares in November 2009; there are now 66 million common shares outstanding.]

What are your respective roles?Bob [Melamede] is really the key to the company. In some ways he is a typical academic, but he's also an old hippie who doesn't like a lot of the formal corporate stuff. He understands the necessity of it, but he'd much rather wear a T-shirt. My work role, by contrast, is stuck somewhere around 1960. We've gotten the company completely straightened out and now we are getting down to much more conventional priorities. We may be focused on cannabis, but in some sense it wouldn't make any difference if it was widgets — if you're going to develop a new widget you have to look for risk capital and figure out how long it will take to get product development done and how to protect your intellectual property and how else to raise money, and so on.

Where are you channeling your research efforts?There's a huge amount that we still don't know about how cannabis works — of course, we still don't entirely know how aspirin works, either. When you consider that the plant may have, say, a hundred different cannabinoids, each with maybe a hundred variations, talk about an unbreakable code! Even if there are only a few dozen variations that are worth pursuing, that's still a lot. Which ones will work best for [post-traumatic stress disorder], say, versus other medical conditions? That's the challenge ahead of us as we try to identify the best candidate or candidates for FDA applications.

The revenue at the moment is on the dispensary side, but ultimately will it be the research that provides the real payoff?There's a company in Britain called G.W. Pharmaceuticals that we look to as a model. They have a product called Sativex that is a whole-cannabis extract, in some sense a sophisticated version of the kind of cannabis tinctures that were on the market back in the late 1930s and 1940s in the United States. It's approved for prescription in Canada and the UK and is about to be approved in Spain. They've taken in close to $100 million in prepaid licensing fees from major pharmaceutical companies. That's a fairly conventional approach in terms of how a new biotech company develops a drug and then either licenses it to a major pharmaceutical company or sells out to the major. As a publicly owned company, we obviously can't say that we would never sell out, because that depends on the bid price, shareholder interest, and so on. So that may or may not happen, but we would be open to a marketing or licensing agreement with a major once we have products in the FDA process.

Who owns your stock?It's hard to know. There are a few million shares outstanding, and it seems that a fairly wide ownership has developed over the past few months because interest in it has picked up. But the use of street names and other factors make it hard to know who owns what unless you look closely, and frankly I haven't done that.

Do you foresee a day when marijuana will be sold over the counter?In our public comments we have made it very clear that both Dr. Melamede and I are strongly in favor of the full legalization of marijuana, and we think that most medical-marijuana products should be sold over the counter, which would be the case, obviously, under full legalization. I am still active in the reform movement, but I don't have as much time for activism as I did when that was all I was doing. That said, I often joke that my title should be CPO, for Chief Politics Officer.

Editor's note: At press time, CBIS was trading at 6 cents per share, for a total market cap of $3.6 million.